UBS shares experienced a decline of 2.14 percent to CHF 26.32 as investors await the final report from the Parliamentary Commission of Inquiry (PCI) on the collapse of Credit Suisse.
The report, expected to be released soon, will provide insights into the actions of various institutions and individuals leading up to the emergency merger of Credit Suisse with UBS in March 2023. The PCI has spent nearly a year and a half investigating the conduct of authorities during this period, with the findings poised to influence future banking regulations in Switzerland.
The PCI's investigation involved extensive hearings with representatives from the government, regulatory bodies, and banking institutions. The committee focused on the management of the Financial Market Supervisory Authority (FINMA), particularly under the leadership of Chairwoman Marlene Amstad. FINMA faced criticism for its perceived lack of assertiveness following the Credit Suisse debacle, prompting the PCI to scrutinize its supervisory activities not only during the final months of Credit Suisse's operations but also throughout the pre-crisis years dating back to 2015.
The PCI's examination of FINMA's actions revealed negative incidents involving Credit Suisse, including the "shadowing scandal," the Mozambique bond scandal, and the failures associated with the Greensill investment fund and Archegos hedge fund. These events raised questions about the effectiveness of regulatory oversight and the ability of FINMA to manage risks within the banking sector. The Swiss National Bank (SNB), which provided liquidity assistance to Credit Suisse during its crisis, is also under scrutiny. The conduct of the SNB, particularly under the leadership of former Chairman Thomas Jordan, will be assessed in light of its involvement in the rescue efforts that began in late 2022.
The report is expected to highlight potential shortcomings in the actions of key political figures, including Finance Minister Karin Keller-Sutter and her predecessor Ueli Maurer. Maurer may face criticism for failing to advocate for decisive measures following significant withdrawals from Credit Suisse in the fall of 2022. Additionally, there are allegations that he did not adequately inform his Federal Council colleagues about the bank's precarious situation, raising concerns about transparency and accountability within the government.
A significant aspect of the PCI's investigation is the evaluation of how well various authorities, including the Federal Department of Finance (FDF), SNB, and FINMA, collaborated during the Credit Suisse crisis. Media reports have indicated unrecorded "secret meetings" involving Maurer, Jordan, and the last Chairman of Credit Suisse, Axel Lehmann, which raises questions about the transparency of decision-making processes during the crisis. The absence of FINMA President Amstad from these discussions has also drawn attention, prompting further inquiries into the effectiveness of inter-agency cooperation.
The findings of the PCI are eagerly anticipated, particularly regarding their implications for the ongoing work on regulating "too big to fail" (TBTF) banks. The report may address the issue of increasing equity capital requirements for systemically important banks, a proposal that has faced resistance from the banking sector, including UBS CEO Sergio Ermotti. The PCI's recommendations could lead to a reevaluation of the regulatory framework governing large financial institutions in Switzerland.
In the spring, the Federal Council proposed a comprehensive package of measures aimed at enhancing TBTF regulation, stating that the results of the PCI's investigation would be incorporated into this ongoing work. The timeline suggests that the Federal Council may issue the first amendments to TBTF rules as early as the first half of 2025, with legislative proposals expected to be submitted to Parliament shortly thereafter. This proactive approach underscores the urgency of addressing the vulnerabilities exposed by the Credit Suisse crisis and the need for robust regulatory measures to safeguard the stability of the Swiss banking system.
The implications for UBS and the broader banking sector are significant as the financial community awaits the PCI's final report. The findings are likely to shape the future landscape of banking regulation in Switzerland, influencing not only the operational frameworks of financial institutions but also the confidence of investors and the public in the regulatory system. The ongoing scrutiny of regulatory practices and the call for greater accountability highlight the critical need for a resilient financial infrastructure capable of withstanding future challenges.